True. Explanation: Market baskets, as mentioned in the lesson, are also referred to as bundles, representing a list with specific quantities of one or more goods.
Consumers are indifferent to all market baskets available in the market.
False. Explanation: Indifference refers to combinations of market baskets that provide a consumer with the same level of satisfaction, not all market baskets.
The assumption of transitivity means that if a consumer prefers basket A over basket B, and basket B over basket C, then they must prefer basket A over basket C.
True. Explanation: The assumption of transitivity ensures the logical consistency of consumer preferences, as stated in the consumer preference assumptions.
Indifference curves can intersect.
False. Explanation: Indifference curves cannot intersect because it would imply that the same bundle provides two different levels of satisfaction, which contradicts the concept of consumer preferences.
The marginal rate of substitution is the maximum amount of one good a consumer is willing to give up to obtain one additional unit of another good.
True. Explanation: This is the definition of the marginal rate of substitution (MRS) as stated in the discussion.
The budget line represents the combinations of goods for which the total amount of money spent equals the consumer’s income.
True. Explanation: The budget line reflects the consumer’s spending in relation to their income, as noted in the file.
The point of tangency between the budget line and the indifference curve represents the point where the consumer maximizes satisfaction.
True. Explanation: This is the condition for maximizing consumer satisfaction, as described in the topic.
The substitution effect refers to the change in consumption associated with a change in price, keeping utility constant.
True. Explanation: The substitution effect is defined this way in the topic.
Consumer surplus is the difference between the price a consumer pays and the market price of a good.
False. Explanation: Consumer surplus is the difference between what a consumer is willing to pay and the amount actually paid.
Network externalities occur when each individual’s demand is independent of the purchases of others.
False. Explanation: Network externalities occur when each individual’s demand depends on the purchases of other individuals, as described in the file.
The bandwagon effect is a negative network externality.
False. Explanation: The bandwagon effect is a positive network externality where demand increases as more individuals buy the product.
The snob effect occurs when a consumer’s demand for a good increases as fewer people purchase the good.
True. Explanation: The snob effect is described in this way in the topic, representing a negative network externality.
A risk-averse consumer prefers a certain income to a risky income with the same expected value.
True. Explanation: This is the definition of risk aversion as mentioned in the consumer preferences toward risk section.
Risk-loving consumers prefer a certain income to a risky income with the same expected value.
False. Explanation: Risk-loving consumers prefer a risky income to a certain income with the same expected value, as noted in the topic.
Diversification is one way to reduce risk for consumers.
True. Explanation: Diversification is one of the methods to reduce risk as mentioned in the “Reducing Risk” section.
Indifference curves are convex because of the diminishing marginal rate of substitution.
True. Explanation: Indifference curves are typically convex to the origin, reflecting the diminishing marginal rate of substitution.
An indifference map consists of a single indifference curve representing different levels of satisfaction.
False. Explanation: An indifference map consists of a set of indifference curves, not just one.
The budget line can shift due to changes in the consumer’s income or prices of goods.
True. Explanation: Changes in income or prices can cause the budget line to shift, as mentioned in the file.
A consumer maximizes satisfaction where the marginal rate of substitution equals the ratio of the prices of two goods.
True. Explanation: This is the condition for consumer satisfaction maximization, where MRS = PF/PC.
More is better than less is one of the assumptions of consumer preferences.
True. Explanation: “More is better than less” is one of the three assumptions of consumer preferences.
Theory of the Firm
The theory of the firm explains how a firm makes cost-minimizing production decisions.
True. Explanation: The theory of the firm explains how a firm makes cost-minimizing production decisions and how its cost varies with its output.
A firm operates to make losses.
False. Explanation: A firm operates to make profits, as mentioned in the topic.
The production function shows the highest output a firm can produce for any combination of inputs.
True. Explanation: The production function shows the highest output that a firm can produce for every specified combination of inputs.
The average product of labor is calculated as the output produced divided by the number of labor units.
True. Explanation: The average product of labor equals output per unit of input, or q/L, as stated in the topic.
The law of diminishing marginal returns states that as the use of an input increases with other inputs fixed, the additions to output will eventually decrease.
True. Explanation: This is the definition of the law of diminishing marginal returns, as noted in the file.
Isoquants represent all possible combinations of outputs that yield the same input.
False. Explanation: Isoquants represent all possible combinations of inputs that yield the same output, not combinations of outputs.
The marginal rate of technical substitution is the rate at which one input can be reduced when one extra unit of another input is used, while keeping output constant.
True. Explanation: This is the definition of the marginal rate of technical substitution (MRTS), as described in the topic.
Increasing returns to scale occur when output more than doubles as all inputs are doubled.
True. Explanation: Increasing returns to scale mean that output more than doubles when all inputs are doubled, as stated in the file.
Constant returns to scale occur when output less than doubles as all inputs are doubled.
False. Explanation: Constant returns to scale occur when output doubles as all inputs are doubled, not less than doubles.
Economic cost includes both actual expenses and opportunity costs.
True. Explanation: Economic cost includes the cost of utilizing resources in production, including opportunity cost, as mentioned in the topic.
Sunk costs should always be considered when making future economic decisions.
False. Explanation: Sunk costs should be ignored when making future economic decisions, as stated in the file.
In the short run, a firm can vary all of its inputs.
False. Explanation: In the short run, some inputs are fixed, while others can be varied.
The user cost of capital includes economic depreciation and the interest rate multiplied by the value of capital.
True. Explanation: The user cost of capital is calculated as economic depreciation plus (interest rate × value of capital), as described in the file.
Economies of scale occur when output can be doubled for less than a doubling of cost.
True. Explanation: Economies of scale occur when output can be doubled for less than a doubling of cost, as mentioned in the topic.
Diseconomies of scale occur when a doubling of output requires less than a doubling of cost.
False. Explanation: Diseconomies of scale occur when a doubling of output requires more than a doubling of cost.
In a perfectly competitive market, firms are price makers.
False. Explanation: In a perfectly competitive market, firms are price takers, not price makers.
The short-run supply curve of a competitive firm is the portion of the marginal cost curve where MC is greater than average economic cost.
True. Explanation: The firm’s short-run supply curve is the portion of the marginal cost (MC) curve for which MC is greater than average economic cost.
In the long run, a firm maximizes profit by choosing output where price equals long-run marginal cost (P = LMC).
True. Explanation: Long-run profit maximization occurs where price equals long-run marginal cost (P = LMC), as described in the topic.
Sunk costs can be recovered after they are incurred.
False. Explanation: Sunk costs cannot be recovered once incurred, as noted in the file.
Firms in highly competitive markets face highly elastic demand curves.
True. Explanation: Firms in highly competitive markets face highly elastic demand curves, as mentioned in the topic.
Competitive Markets
A government-imposed price ceiling causes the quantity of a good demanded to rise and the quantity supplied to fall.
True. Explanation: A price ceiling results in a higher demand and lower supply, creating a shortage, as mentioned in the topic.
Consumer surplus is the difference between what a consumer is willing to pay and what they actually pay for a good.
True. Explanation: Consumer surplus represents the benefit consumers receive beyond what they pay for a good.
Producer surplus is the sum over all units produced of the difference between the market price of a good and its marginal cost.
True. Explanation: Producer surplus is defined as the sum of the difference between the market price and the marginal cost (MC) for each unit produced.
Deadweight loss occurs when price controls result in a net gain in total surplus.
False. Explanation: Deadweight loss occurs when price controls result in a net loss of total surplus, as explained in the topic.
In cases where demand is inelastic, consumers may suffer a net loss from price controls.
True. Explanation: When demand is inelastic, the loss from price controls may be greater for consumers, leading to a net loss.
Economic efficiency is the maximization of aggregate consumer and producer surplus.
True. Explanation: Economic efficiency refers to the maximization of total surplus, which includes both consumer and producer surplus.
Market failure occurs when a competitive market is perfectly efficient and prices provide proper signals.
False. Explanation: Market failure occurs when an unregulated competitive market is inefficient because prices fail to provide proper signals to consumers and producers.
Externalities are costs or benefits from market transactions that are internal to the market.
False. Explanation: Externalities are costs or benefits that are external to the market and do not show up as part of the market price.
Government intervention is unnecessary when consumers lack information about the quality of products.
False. Explanation: Government intervention, such as requiring “truth in labeling,” may be necessary when consumers lack information to make utility-maximizing decisions.
Minimum wage laws are an example of a government policy seeking to lower prices below market-clearing levels.
Price supports aim to increase prices of particular farm products so that farmers receive higher incomes.
True. Explanation: Price supports are designed to raise the prices of certain farm products, ensuring that farmers earn higher incomes.
Price supports result in consumers paying a higher price and producers receiving a lower price.
False. Explanation: Price supports cause consumers to pay a higher price, but producers receive a higher price as well.
The total welfare cost of price supports is the sum of the consumer surplus lost, producer surplus gained, and cost to the government.
True. Explanation: The total welfare cost includes changes in consumer and producer surplus, plus the cost to the government.
The government can eliminate deadweight loss from price supports by giving farmers direct payments instead of using price supports.
True. Explanation: Direct payments to farmers would avoid the inefficiency caused by price supports, reducing the overall welfare loss.
Production quotas restrict supply to maintain prices above the market-clearing level.
True. Explanation: Quotas limit supply, ensuring that prices remain above the market-clearing level.
Import tariffs raise the domestic price above the world price, benefiting consumers.
False. Explanation: Import tariffs raise the domestic price, which benefits producers but harms consumers by increasing prices.
The burden of a tax is always equally split between buyers and sellers.
False. Explanation: The burden of a tax is split depending on the relative elasticities of supply and demand, not always equally.
If demand is more elastic than supply, the burden of a tax falls mostly on buyers.
False. Explanation: When demand is more elastic than supply, the burden of the tax falls mostly on sellers.
A subsidy is a form of negative tax that benefits both buyers and sellers depending on supply and demand elasticity.
True. Explanation: A subsidy is a negative tax, and its benefits are shared between buyers and sellers based on the elasticities of supply and demand.
Price controls never result in deadweight loss if demand is elastic.
False. Explanation: Price controls can result in deadweight loss regardless of the elasticity of demand, as shown in the topic.
Monopoly and Monopsomy
Monopoly is a market with only one seller.
True. Explanation: By definition, monopoly is a market where there is only one seller, as mentioned in the topic.
A monopolist’s average revenue (AR) is the same as the market demand curve.
True. Explanation: The monopolist’s AR, or the price it receives per unit sold, is the market demand curve.
For a competitive firm, price equals marginal cost (P = MC), while for a monopolist, price exceeds marginal cost (P > MC).
True. Explanation: For a competitive firm, P = MC; for a monopolist, price exceeds marginal cost, as noted in the topic.
The Lerner Index is a measure of monopoly power, calculated as the excess of price over marginal cost as a fraction of price.
True. Explanation: The Lerner Index measures monopoly power by comparing how much price exceeds marginal cost as a fraction of price.
Markup pricing is lower in convenience stores than in supermarkets because convenience stores face more elastic demand.
False. Explanation: Convenience stores face less elastic demand than supermarkets, leading to higher markup pricing in convenience stores.
Designer jeans often have demand elasticities in the range of -3 to -4, meaning their prices are 33% to 50% higher than marginal cost.
True. Explanation: Designer jeans have demand elasticities of -3 to -4, resulting in prices being 33% to 50% higher than marginal cost.
Monopoly power is higher in markets where demand elasticity is low, and there are few firms interacting.
True. Explanation: Monopoly power increases when the elasticity of market demand is low and there are few firms in the market.
Rent-seeking activities, such as lobbying and campaign contributions, do not contribute to the social cost of monopoly power.
False. Explanation: Rent-seeking activities increase the social cost of monopoly power because firms engage in socially unproductive efforts to maintain monopoly power.
Price regulation always results in deadweight loss, regardless of whether the market is competitive or monopolistic.
False. Explanation: Price regulation results in deadweight loss in competitive markets, but it can reduce deadweight loss in monopolistic markets.
A natural monopoly occurs when a firm can produce the entire market output at a lower cost than multiple firms could.
True. Explanation: A natural monopoly arises when one firm can produce the entire market output more cheaply than several firms could.
Monopsony is a market with a single seller.
False. Explanation: Monopsony is a market with a single buyer, not a single seller.
Monopsony power allows a buyer to pay less for a good than they would in a competitive market.
True. Explanation: Monopsony power enables a buyer to purchase goods at a lower price than in a competitive market.
The marginal expenditure (ME) in a monopsony market is the additional cost of purchasing one more unit of a good.
True. Explanation: Marginal expenditure represents the additional cost of purchasing one more unit of a good in a monopsony market.
A monopsonist faces a downward-sloping supply curve, meaning that ME is greater than average expenditure (AE).
False. Explanation: A monopsonist faces an upward-sloping supply curve, meaning ME is greater than AE, as explained in the topic.
Antitrust laws, such as the Sherman Act and the Philippine Competition Act, aim to prevent actions that restrain competition.
True. Explanation: Antitrust laws prohibit actions that restrain competition, as detailed in the topic.
Parallel conduct refers to explicit collusion between firms to fix prices and divide the market.
False. Explanation: Parallel conduct is implicit collusion where firms follow each other’s actions, not explicit price fixing.
Predatory pricing involves lowering prices to drive out competitors and discourage new entrants into the market.
True. Explanation: Predatory pricing is the practice of setting low prices to drive out competitors and prevent new entrants from entering the market.
In a competitive market, a firm’s price always exceeds its marginal cost.
False. Explanation: In a competitive market, price equals marginal cost (P = MC), not exceeds it.
Monopsony power is reduced when buyers compete aggressively and bid up prices.
True. Explanation: When buyers compete aggressively, prices rise, and monopsony power is reduced, as noted in the topic.
A monopsony market is characterized by multiple buyers controlling a single seller’s price.
False. Explanation: In a monopsony, there is only one buyer who controls the price, not multiple buyers.
